[Direct Tax - I Solved Question Papers 2014, Dibrugarh University Solved Question Papers, B.Com 5th Semester]
DIRECT TAX LAW I – NEW SYLLABUS QUESTION PAPERS
2014 (November)
COMMERCE (Speciality)
Course: 504 (Direct Tax – I)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. (a) Write True or False: 1x4=4
a)
Body
of individuals should consist of individuals only. True
b)
Once
a person is a resident in a previous year, he shall be deemed to be resident
for subsequent previous year also. False
c)
Retrenchment
compensation received by a workman at the time of his retrenchment is exempt
under Section 10 (10B) to the maximum extent of Rs. 5,00,000. True
d)
Municipal
tax is a deduction from net annual value. False, from Gross Annual value
(b) Fill in the blanks:
1x4=4
a)
A
new business was set up on 15.10.2013 and it commenced its business from
01.12.2013. The first previous year in this case shall be 15.10.2013 to 31.03.2014.
b)
Monthly
pension received by a government employee is fully taxable.
c)
Dividend
received by a company from a domestic company is exempt.
d)
Total
income of a person is determined on the basis of residential status in India.
2. Write short notes on the following:
4x4=16
a) Income tax law in India.
Ans: Income Tax Law in India: The
income tax law in India consists of the following components:
1. Income tax Acts
2. Income tax rules
3. Finance Act
4. Circulars, notifications etc
5. Legal decision of courts.
Income tax Act, 1961: At present the law of
income tax in India is governed by the Income Tax Act, 1961 which extends to
whole of India, including the Sates of Jammu and Kashmir and Sikkim. It as
administered along with other direct taxes by the Central Board of Direct Taxes
(C.B.D.T.) The Board has framed various rules for the administration of income
tax, which are known as the Income Tax Rules, 1962. They are amended and
modified from time to time, as required by the amending Income tax Act. The
Income Tax Act, 1961 is having 298 sections and many more subsections and
twelve schedules.
Income-tax Rules: The administration of
direct taxes is looked after by the Central Board of Direct Taxes (CBDT). The
CBDT is empowered to make rules for carrying out the purposes of the Act. For
the proper administration of the Income-tax Act, the CBDT frames rules from
time to time. These rules are collectively called Income-tax Rules, 1962.
Finance Act: Every year, the Finance Minister
of the Government of India presents the Budget to the Parliament. Once the
Finance Bill is approved by the Parliament and gets the assent of the President
of India, it becomes the Finance Act.
Circulars and Notifications: Circulars are
issued by the CBDT from time to time to deal with certain specific problems and
to clarify doubts regarding the scope and meaning of the provisions. These
circulars are issued for the guidance of the officers and/or assessee.
b)
Assessee.
Ans:
Assessee [Section 2 (7)]: To mean a person by whom any tax or any other sum of money payable
under the Act and include:
i)
Every
person in respect of whom any proceeding has been initiated under the act for
the assessment of his income or the income of any other person.
ii)
A
person who is deemed to be assessee under any provision of the Act.
iii)
A
person who is deemed to be an assessee in default in any of the provision of
the Act.
Persons Liable
to Pay Income Tax :
A. Following
persons are liable to pay income-tax if their taxable income’ in a year exceeds
the basic exemption limit for the year:
1. Individuals
(including non-residents),
2. Hindu
Undivided Families (HUFs)
3. Association
of Persons (AOPs)/Bodies of Individuals (BOIs) (where the individual shares of
the members are known)
4. Artificial
juridical persons, such as, deities of temples
5. Societies
and charitable/religious trusts
B. Following
persons are liable to pay income-tax irrespective of their income :
1. All
partnership firms (including limited liability partnership firms)
2. Co-operative
societies
3. Companies
4. Local
authorities
5. AOP/BOI
where shares of the members are indeterminate or unknown.
c)
Scope of total income.
Ans: Section
14: As per section 14, all income, for purposes of income-tax, will be
classified under the following heads of income.
(i)
Salaries,
(ii)
Income from House Property,
(iii)
Profits and gains of business or profession
(iv) Capital gains
(v)
Income from other sources
Aggregate of incomes computed under
the above 5 heads, after applying clubbing provisions and making adjustments of
set off and carry forward of losses, is known, as gross total income (GTI)
[Sec. 80B]
d) Residence and tax
liability.
Ans: As per Section 5 of the Income Tax Act 1961,
incidence of tax on a taxpayer depends on his residential status and also on
the place and time of accrual or receipt of income.
In order to
understand the relationship between residential status and tax liability, one
must understand the meaning of “Indian income” and “Foreign income”. An Indian
income is one which satisfies any of the following conditions:
1)
If income is
received (or deemed to be received) in India during the previous year and at
the same time it accrues (or arises or is deemed to accrue or arise) in India
during the previous year, or
2)
if income is
received (or deemed to be received) in India during the previous year but it
accrues (or arises) outside India during the previous year, or
3)
if income is
received outside India during the previous year but it accrues (or arises or is
deemed to accrue or arise) in India during the previous year.
Similarly,
foreign income is one which satisfies both the following conditions:
1)
Income is not
received (or not deemed to be received) in India; and
2)
Income does not
accrue or arise (or does not deemed to accrue or arise) in India.
Indian income is
always taxable in India irrespective of the residential status of the taxpayer.
Foreign income of an individual and HUF from a business controlled or
profession setup in India will be taxable in the hands of resident and
ordinarily resident and resident but not ordinarily resident but not in the
hands of a non-resident. However, Foreign income from a business controlled or
profession setup outside India will be taxable only in the hands of resident
and ordinarily resident and not in the hands of a resident but not ordinarily
resident or a non-resident person.
Foreign income of
any other taxpayer (Company, Firm, AOP, BOI etc.) will be taxable if the
taxpayer is resident in India and will not be taxable in case the taxpayer is
non-resident in India.
Tax incidence of different
taxpayers is as follows—
|
Particulars
|
ROR
|
RNOR
|
NR
|
|
Income received
in India
Income deemed
to be received in India
Income accruing
or arising in India
Income deemed
to accrue or arise in India
Income
received/ accrued outside India from a business in India
Income
received/ accrued outside India from a business controlled outside India
|
Yes
Yes
Yes
Yes
Yes
Yes
|
Yes
Yes
Yes
Yes
Yes
No
|
Yes
Yes
Yes
Yes
No
No
|
3. (a) Explain the
special provisions of law relating to tax holiday for newly established undertakings
in free trade zones.
14
Or
(b) Explain the special provisions of law relating to tax
holiday for newly established 100 percent export-oriented undertakings.
4. (a) From the following information compute the taxable income
under the head ‘Salaries’ for the assessment year 2014 – 15 of Mr. P who is a
central government employee at Dibrugarh: 14
a) Basic
salary – Rs. 30,000 p.m.
b) DA
(enters) – 60% of salary.
c) Transport
allowance for commuting from home to office – Rs. 2,000 p.m.
d) Deputation
allowance (for two months) – Rs. 3,000 p.m.
e) Education
allowance for two children at Rs. 250 p.m. per child and hostel allowance for
two children at Rs. 450 p.m. per child.
f) He
has been provided with a rent free accommodation. The license fee for the
accommodation has been fixed at Rs. 2,000 p.m. The government has also provided
him with furniture items costing Rs. 1,00,000 (w.d.v. Rs. 75,000) for his
personal use.
g) He
has been provided with the facility of a servant and a watchman with effect
from 01.10.2013 and the government is paying Rs. 3,000 p.m. to each of them.
h) A
laptop costing Rs. 45,000 has been given to him for his official as well as
personal purposes.
i)
On 01.04.2013, he took a loan
of Rs. 1,50,000 from his employer to buy a car at a concessional rate of
interest of 8% p.a. SBI rate of interest as on 01.04.2013 is 14% p.a.
j)
He paid professional tax of
Rs. 3,000 p.a.
Ans: Computation of salary of Mr. X for the
Assessment Year (2018-2019)
Computation of salary of Mr. X for the
Assessment Year (2018-2019)
|
Particulars |
Amount |
Amount |
|
a) Basic Salary b)
Dearness Allowance (60% of salary) c)
Children education allowance (250*12*2) Less:
Exempted @ 100 per month for a maximum of two children d)
Hostel expenditure allowance (450*12*2) Less:
Exempted @ 300 per month for a maximum of two children e)
Travelling allowance Less:
Exempted @ 1,600 per month f)
Deputation allowance g)
Use of laptop and computers h)
Salary of servants i)
Salary of watchman j)
Value of rent free house: License
fees of the house Add:
10% of cost of furniture k)
Interest free loan (1,50,000*6%) |
6,000 2,400 10,800 7,200 24,000 19,200 24,000 10,000 |
3,60,000 2,16,000 3,600 3,600 4,800 6,000 Exempt 18,000 18,000 34,000 9,000 |
|
Gross Salary Less: Deduction U/S 16 Professional tax paid by employee |
|
6,73,000 3000 |
|
Income from Salary |
|
6,70,000 |
Or
(b) What are the provisions of the Income-tax Act
regarding the
following? 5+5+4=14
1.
Gratuity.
2.
Encashment of leave.
3.
Retrenchment compensation.
Ans: 1) Gratuity [Sec. 10(10)]: Gratuity
is the sum paid by the employer to its employees in appreciation of its past
services. Taxability of perquisites are given below for various types of
employees:
|
Government employees
|
Employees covered under Gratuity Act
|
Any other employee
|
|
Fully exempt
|
Minimum of the following 3 limits:
|
Minimum of the following 3 limits:
|
|
(1) Actual gratuity received, or
(2) 15 day's salary for every completed year, or part thereof
exceeding six months (7 day's salary for each season for an employee in a
seasonal establishment); or
(3)Rs. 20,00,000
|
(1) Actual gratuity received, or
(2) Half months average salary of each completed year of
service.
(3) Rs.20,00,000
|
|
|
Meaning of Salary:
(i) Basic salary plus Dearness allowance.
(ii) Last drawn salary (average salary of preceding three months
in case of piece rated employee)
(iii) No. of days in a month to be taken as 26
|
Meaning of Salary:
(i) Basic Salary plus D.A. to the extent the terms of employment
so provide Commission, if fixed percentage of turnover.
(ii) Average salary of last 10 months preceding the month in
which event occurs.
(iii) Only completed year of service is to be taken.
|
2) Encashment of earned leave
Ans: Any payment received by a Central/State Govt. employee,
as cash equivalent of leave
salary in respect of period of earned leave at his credit at the time of his retirement whether
o superannuation or otherwise. However, in case
of other employees the exemption is available subject to specified
limits.
1. Leave encashed during service: fully
taxable in which it is encashed
2. Leave encashed at the time of retirement
For govt. employee: fully exempted
For other employees: exempted upto
minimum of the following
Ø Notified limit Rs. 300000
Ø Average salary x 10 months
Ø Actual amount received
Ø Average salary x no. of months leave
due
Average salary = salary (Same as PF)
for 10 months including the month of retirement / 10
Leave due is to be calculated taking
one month leave or actual entitlement whichever is less
3) Retrenchment Compensation
Ans: Retrenchment
Compensation [Sec. 10(10B)]
Retrenchment compensation received by an assessee at the
time of his retrenchment, shall be exempt to the least amount from the
following:
(i) Actual
amount received
(ii) An amount calculated in accordance with the provisions
of section 256F(b) of the Industrial Disputes Act, 1947 which
is equal to 15 days average pay for each completed year of continuous service
or any part thereof in excess of 6 months,
(ii) Amount
specified by the Central Government, i.e. Rs. 500,000
5. (a) State the provisions relating to computation of
income from house property. 14
Ans:
Annual Value (Section 23)
The Annual Value
of a house property is the inherent capacity of the property to earn income
and it has been defined as the amount for which the property may
reasonably be expected to be let out from year to year. It is not necessary
that the property should actually be let out. It is also not necessary that the
reasonable return from property should be equal to the actual rent realized
when the property is, in fact, let out.
Computation of
annual value: Computation
of Annual Value for the determination of Income from House property requires
three steps.
Ø STEP 1 Determine the Gross Annual Value(GAV)
Ø STEP 2 Determine the value of Municipal taxes
Ø STEP 3 Compute the Net Annual Value
STEP 1- Determine
the Gross Annual Value (GAV):
Calculation
of GAV based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar
to the house property the GAV of which is to be determined) in the same
locality would fetch.
2) Municipal Rental Value (MRV): The value of the house property under consideration
as determined by the Municipal authorities for the purpose of levying Municipal
taxes.
3) Standard Rental Value (SRV): The maximum amount of rent which a person can
recover from his tenant, legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is
higher, subject to the Standard rent.
5) Unrealised rent:
The amount of rent which is not capable of being realised. The amount of Unrealised rent shall not be included in
the actual amount of rent receivable from the house property if all the
following for conditions are satisfied:
a)
Tenancy is in good-faith.
b)
The defaulting tenant has vacated or steps must have been taken to vacate such
tenant.
c)
The defaulting tenant doesn't continue to occupy any other property of the
assessee.
d)
Assessee has taken all the reasonable steps to proceed against the defaulting
tenant legally or he must satisfy the assessing officer that if such steps are
taken, it will be of no use.
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference between
the Rent receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner by reason of
his employment, business or profession being in some other place and he resides
at that place in a property not owned by him.
It
should be noted that the procedure for determination of Gross Annual Value is
not same in all the cases. It varies according to the given situation. Various
situations and the respective procedures for computation of GAV are given below:
1) Property is let out throughout the
previous year (Section 23(1) (a)/ (b)):
GAV = ERV or ARR, whichever is higher.
2) Let out property is vacant for a part
of the year (Section 23(1) (c)):
If the ARR < ERV only because the property
was vacant for a part of the year, GAV = ERV. If the ARR < ERV for any other reason, GAV = ERV.
If the ARR > ERV even though it was vacant
for a part of the year, GAV = ARR. In all
the cases, ARR is computed for the let out period only and the ERV is for whole
year as usual.
3) Self-occupied or Unoccupied property (Section 23(2)): GAV
= Nil
4) Let out for a part of the year and
self-occupied for a part of the year (Section
23(3)): GAV = Higher of ERV
(calculated for the whole year) and ARR (calculated for let out period only)
5) Deemed to be let out property (Section 23(4)): This case arises when the assessee has more than two Self-occupied
properties in a previous year. In such case, only two of such properties is
treated as self-occupied and the remaining shall be treated as Deemed to be let
out properties. Here, GAV = ERV.
6) A portion of the property is let out
and the remaining portion is self-occupied: GAV is calculated separately for self-occupied part and the let out
part. The values of FR, MV, SR and Municipal taxes are apportioned on the given
basis.
Thus,
there is a scope for charging tax on Notional rent too. This happens when the
GAV determined according to the above steps is the ERV.
Now
that the Gross Annual Value of the house property is determined, the next step
is to determine the value of Municipal taxes paid that is deductible from the
Gross Annual Value.
STEP 2 -
Determine the value of Municipal taxes:
The
municipal tax or the property tax paid is allowed as deduction from the Gross
Annual Value if the following two conditions are satisfied.
(a) The
property is let out during the whole or any part of the previous year,
(b) The
Municipal taxes must be borne by the landlord. If the Municipal taxes or any
part thereof are borne by the tenant, it will not be allowed.
(c) The
Municipal taxes must be paid during the year. Where the municipal taxes become
due but have not been actually paid, it will not be allowed.
STEP 3 - Compute
the Net Annual Value:
Gross
Annual Value ++++++
Less:
Municipal Taxes ++++++
Net
Annual Value ++++++
Deductions allowable under
section 24 of the income tax act
Following two
deductions will be allowable from the net annual value to arrive at the taxable
income under the head ‘income from house property’:-
(a) Statutory
deduction: 30 per cent of the net annual value will be allowed as a deduction
towards repairs and collection of rent for the property, irrespective of the
actual expenditure incurred.
(b) Interest
on borrowed capital: The interest on borrowed capital will be allowable as a
deduction on an accrual basis if the money has been borrowed to buy or
construct the house. It is immaterial whether the interest has actually been
paid during the year or not. If money is borrowed for some other purpose,
interest payable thereon cannot be claimed as deduction.
Limit of deduction
u/s 24(b)
A. In case
of Let out/ deemed to be let out house property: Interest
on Money borrowed is allowed as deduction without any limit. Here interest on
money borrowed = interest of P/Y + 1/5 of Pre-construction
period (PCP) interest. PCP
started from the date of borrowing and ended on 31st mar immediately
preceding (Before) the year of
completion.
B. In Case
of Self Occupied House Property: Max. Rs.
2,00,000 is allowed as deduction if the following conditions are satisfied:
Ø Loan taken after 1 – 4 – 99
Ø For construction/purchase (Capital expenditure) of house
Ø Construction completed within 5 years
from the end of financial year in which
loan is borrowed.
Ø Loan certificate is obtained
For all other cases maximum allowed deduction
is Rs. 30000
Or
(b) Mr. S owns a house property in New Delhi. From the particulars
given below, compute his income from house property for the assessment year
2014 – 15:
|
Municipal value – Rs. 2,00,000
Fair rent – Rs. 2,52,000
Standard rent – Rs. 2,40,000
Actual rent (per month) – Rs. 23,000
Municipal taxes – 20% of municipal
value
Municipal taxes paid during the year
– 50% of tax levied
Expenses on repairs – Rs. 20,000
Insurance premium – Rs. 5,000
|
Mr. S had borrowed a sum of Rs. 15,00,000 @ 15% p.a. on 01.07.2012
and the construction of the property was completed on 31.01.2014.
Ans: Computation of Income from house
property of Mr. S for the assessment year 2015-16 (Previous Year 2014-15)
|
Particulars |
Amount |
|
1. Municipal Rental Value 2. Fair Rental Value 3. Standard Rental Value 4. Expected Rental Value (MRV or FRV
whichever is higher but limited upto SRV) 5. Actual Rent received or
receivable less unrealised rent 6. Gross Annual Value (higher of 4
or 5) 7. Less: Municipal taxes paid (20%
of MRV) |
2,00,000 2,52,000 2,40,000 2,40,000 2,76,000 2,76,000 20,000 |
|
8. Net Annual value (6-7) Less: Deduction under section. 24 (a) Standard Deduction @ 30% (b) Interest on money borrowed
(2,25,000+33,750) Previous year
(2014-15) = (15,00,000*15%) 1/5 of
preconstruction period (1-7-12 to 31-03-2013) =
1/5(15,00,000*15%*9/12)=33,750 |
2,56,000 76,800 2,58,750 |
|
Income/
(Loss from house property) |
(79,550) |
6. (a) What are the
powers of the Commissioner of Income Tax in regard to search and seizure under
Section 132 of the Income-tax
Act? 14
Or
(b) State the scope of
power of Commissioner of Income Tax. How does the same differ from the powers
of Commissioner of Income Tax (Appeals)?
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